Invest with Jac's is a blog to share my personal investment views on how to start and continue to look for valuable companies and properties to invest in.

Wednesday, January 6, 2010

How much is enough to start investing?

Warren Buffett started to invest when he has accumulated US$115, at the age of 11. He bought 3 shares of Cities Service Preferred.

Well, when should one start investing and how much must one have to start investing?
To me, you just need S$500 and you can start investing. That's the problem with Singapore Stock Exchange. You can only buy in multiples of 1000 shares in more than 90% of the companys listed. The second reason is the high commission rate that we are paying the brokers in Singapore. So, how can we start like buffett who only used US$115 to buy 3 shares? It's impossible unless you are buying US stocks, to own part of the company.

Scenario 1:
Jason has S$500 and he does not know what to buy. If he were to buy a Singapore company, he can only look for those whose price is below S$0.45, as he needs to pay for the high commission that the broker is charging, minimum S$25. This can only happen when there is a crisis like the one in the beginning of 2009. At that time, Metro Holdings was only at S$0.34. Well, if he were to buy 1000 Metro shares then, he would have spent $370, leaving $130, sitting there doing nothing. Today, Metro has rose to S$0.80. If he were to sell now, he will receive S$770, earning a profit of $400. In total, he would have S$900, making 80% returns on $500 invested.

Scenario 2:
Jason has S$500 and he decided to buy shares of a US company, Garnett. It was only US$2 at the same time when Metro was S$0.34. S$500 is only US$$357. Hence, he can only buy US$327 worth of stock. Well, at least he can use all US$326 to buy 163 Gannett share. Today , the share price shoots up to US$16.30. If he were to sell all the 163 shares he has, he would get US$2626, which can be converted to S$$3650. In total, he would have make a return of 630% returns on S$500 invested.

Scenario 3:
Jason has S$500 and he has found that Nutrisystem does not have any debt. He has done homework on the company and feels that he can buy the company at a discount. The price was US$14 at the same time as the above 2 scenarios. Hence, he bought 23 shares of Nutrisystem. Just before the new year, Nutrisystem was above US$32. Jason felt that at US$32, it's P/E ratio was way too high compared to earnings of only US$1. He sold all 23 share and received, US$736, converted to S$$1023. With this amount, he actually makes a return of 105%.

Compare the 3 scenarios and decide for yourself, the path of your investment.